The Dynamics of Corruption and Government Expenditure in Determining Domestic Savings in D-8 Countries

Abstract

The intention of this study is to analyze how control of corruption and gross national expenditure shape domestic savings in D-8 nations over a 19-year period from 2005 to 2023, by also incorporating other influential factors such as GDP per capita, urbanization and inflation. The annual data is extracted from the World Bank Database, and the application of Hausman Test determined that Fixed Effects model was the right methodology to be implemented in our panel dataset using Eviews10 programme. The insights from the empirical analysis indicate that an increase in the control of corruption is associated with a 3.5% decrease in domestic savings. Similarly, as gross national expenditure rises by 1% we expect the savings volume to be reduced by 1.9%. Moreover, GDP per capita and urbanization show high statistical significance and positive coefficients. A 1% rise in economic growth and urban population will cause a 2.7% and 1.9% rise in savings, respectively. Interestingly, the only variable to show insignificance despite its negative sign is found to be inflation, thus, having no impact on the dependent variable. We offer valuable insights for governments and policymakers in the D-8 countries, by emphasizing which factors significantly affect domestic savings. Understanding the negative effect of control of corruption and high government expenditure on savings can direct governments in implementing more efficient fiscal discipline and institutional reforms to enhance further economic development. Keywords: domestic savings,